When you think of the functions that will help your company grow, you probably think of roles like product, marketing, or sales. You probably don’t think of your back office – but you should. Your back office may not directly earn you money, but with the right approach it can help set you up for faster, more sustainable growth.
First things first: what are back office functions?
While the customer-facing “front office” tends to generate revenue (sales, marketing, etc), the back office includes all the functions required for a company to actually run – HR, payroll, payment processing, accounting and bookkeeping, supply chain, and more.
Because these functions generally don’t bring in revenue, companies sometimes dismiss the back office as a cost center. It can then be tempting to view back-office tasks like bookkeeping as just a box that needs to be checked – usually with the bare minimum, so you can devote more resources to the front office.
Naturally, you want to keep your operating costs down. But if you only view functions like bookkeeping as an expense to be dealt with, you’re missing out on the ways that high-quality books, and other back-office data, can empower your business.
One of the more obvious benefits of accurate, high-quality bookkeeping is a clearer view of what you’re actually spending money on. Understanding your costs is particularly important when it comes to your cash flow – more specifically, where you’re burning cash.
You probably have at least an idea of where your cash is going, but it’s too important to just estimate. Whether you’re a startup trying to manage your runway or a small business trying to stay profitable, keeping your cash burn under control is vital. If your estimates are wrong, you might make different choices around your business than you would if you had accurate numbers.
Once you know for certain where your biggest sources of cash burn are, you can examine if you’re getting the right value for the money – and explore ways your cash burn might be reduced.
Data-driven decisions is the byword of most businesses in the 21st century. The catch? It only works if your data is correct. A good back-office setup can supply you with the accurate data on your business that you need to make the right decisions.
One of the most common examples that businesses run into is hiring. You know you have work to be done, but is it enough to justify a new hire? Beyond just the cost of their salary, how would this new hire impact your operational costs? The key to exploring scenarios like this is a well-constructed business budget, which is only possible if you have reliable financial records. You can run the numbers through your budget to determine the cost results of expanding your team, and from there determine if a new hire makes sense.
Another common example is marketing – frequently one of the largest costs for a small business. Say your business is considering offering a promotional discount to increase customer acquisition. Your back office records can tell you exactly how much it costs to onboard customers or fulfill orders, what your margins are, how much profit you can expect to make from each customer. This information is vital for determining how much of a discount you can afford to offer, while ensuring that your business ultimately benefits.
Besides just day-to-day decisions, back-office records like your books can help you develop, pursue, and succeed at longer-term strategies for growing your business.
In business as in anything, a major component of success is timing. You wouldn’t want to launch your new product during a slow season for your business; you also wouldn’t want to launch your new product without the budget to adequately market and support it. Your financial records give you the data to understand what your future resourcing will look like, so you can plan the best time to make future moves – or what you’d need to do to get there.
For example, say your company is planning to launch a new, complementary product line. From your financial records, you can see how much you spend to market your current product, and extrapolate how much you’ll need to launch the new one. You can then plan around that future expenditure and, if necessary, start cutting costs now to save capital for the launch.
Sometimes, a significant expansion will only be possible through outside capital, whether it’s a bank loan or investor funding. Regardless of the source, you have a better chance of getting access to the capital you need if you can show potential lenders or investors that you have clean, well-ordered books (which ties into other back office functions like payroll). Not only do good books make it easier for outsiders to understand the health of your business; that you have them also builds confidence that your company will make good use of any additional funds.
Back office functions like bookkeeping may not be glamorous, but they give you the tools to run your business well and position it to grow. It’s worth investing in getting the back office set up right, so you can reap the benefits later.